Boeing, China And The Trade War Retaliations With The US

Air china

Boeing Co.’s 737 Max woes make it a prime target for China’s trade-war retaliations.

China, responding to increased tariffs imposed by the U.S. last week, said Monday that it will boost levies on nearly 2,500 American products to 25%, while several thousand other items will be subject to taxes ranging from 5% to 20%. Soon after, Hu Xijin, the editor-in-chief of China’s Global Times, tweeted that China also may stop purchasing U.S. agricultural and energy products, explore dumping U.S. Treasuries and reduce orders for Boeing jets, in what would mark a more painful escalation of tensions.

There’s reason to be skeptical about this; for one, the Global Times isn’t an official government mouthpiece. Halting agricultural orders would seem to come at an impossible cost to China’s food supply, particularly given the deadly swine flu outbreak that’s wiping out much of its domestic hog production. And abandoning U.S. bonds en masse is much easier said than done, as my colleague Brian Chappatta has written. As for curtailing Boeing orders, such a move would likely squeeze travel growth in China — and yet, of all of these measures, it’s the most plausible, at least on a temporary basis. So it’s worth thinking through what the implications would be.

Boeing is the U.S.’s biggest exporter and something of a national treasure, a status which alone would seem to qualify it to eventually end up in the cross hairs of escalated trade tensions. But two fatal crashes of its Max jet in just five months and a global grounding that’s now lasted two months make Boeing particularly vulnerable right now to any sort of order slowdown.

It wouldn’t be completely unprecedented for China to try to leverage its position as a big Boeing customer to its advantage. Bloomberg News reported that Chinese officials sought in 2017  to use approval of the Max as a way to negotiate more favorable regulatory treatment for home-grown jets being developed by Commercial Aircraft Corp. of China Ltd., or Comac. In the end, after the Federal Aviation Administration reportedly rebuffed inquiries from U.S. trade officials seeking to bolster American exports and refused to deviate from its typical procedures, China certified the Max anyway. I’m not so sure China will resist the opportunity to use Boeing as a pawn this time around.